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Trust Administration. What’s That?

CunninghamLegal – The Living Trust Lawyers

Trust Administration – What’s that?

This is a question we get on occasion from clients.  The terms trust administration or trust settlement refer to the process of following through with the trust provisions and distributions after someone has died.  This process may involve helping the trustees (often a family member) with gathering and liquidating assets such as real estate and investments.  Trust administration can also involve navigating tax aspects of the trust, or dealing with problem beneficiaries.  The trust administration process, when done correctly, aids the trustee in making sure that all provisions of the trust are accurately adhered to, that the inheritance is properly distributed to the correct individuals and that all taxes and other obligations are specifically addressed.

CunninghamLegal is a leading law firm in trust administration.  Operating fully staffed offices in both Northern and Southern California, our firm has a dedicated team of talented attorneys and staff whose primary focus is working with trustees to successfully distribute and complete trusts after a death.  Attorney Preston Marx is the trust administration team leader, and he is assisted by Attorney Stephen Wood.  Firm-wide, CunninghamLegal has five paralegals and two legal assistants actively working with clients to settle trusts.  Our team not only has the required legal experience knowledge, but is also adept in helping people through what is a very emotional and traumatic time in their lives.  This combination of know-how and empathy allows families bring this important chapter to a successful close.

If you would like to learn more about trust administration, are an attorney who needs trust administration for a client, or if you would like to visit one of our offices, please call Preston Marx, Attorney at CunninghamLegal on 530-269-1515 or visit our website at www.cunninghamlegal.com for more information.

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Families Spend More To Care For Their Aging Parents Than To Raise Their Kids

CunninghamLegal – The Living Trust Lawyers

This is an eye-opening article from Forbes on the cost of caring for aging parents. You might be surprised to read that it costs families more to care for a frail older adult than to raise a child for the first 17 years of her life. Planning for these costs now will prepare you and your family for the future.

Read the entire article here: Costs of Caring for Aging Parents

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Is Hiring a Specialist a Good Idea?

CunninghamLegal – The Living Trust Lawyers

When I was going to law school, I often received calls from family members and friends with legal questions they had ranging from contracts, landlord-tenant issues, divorce, personal injury, workers compensation and the list goes on. I would try my best to help answer someone’s legal question, but I quickly realized that it is impossible for an attorney to know everything about the law. There are millions of pages of state laws, federal laws and even more pages of published court opinions interpreting laws. Just like you would see a cardiologist for a heart problem because they listen to heartbeats all day long, you should hire an attorney to do your estate plan who solely does estate planning.

However, if you are looking for an attorney, how can you be assured that the attorney you are speaking to understands your legal concerns and knows how to help? Any attorney can say they practice a specific field of law, but how can you be assured that they really do? The State Bar of California, the certifying authority for attorneys, developed a “certified specialist” program so that it is easier for you know that you are hiring someone who is an expert in their field. I recently obtained my certified specialist designation in estate planning, trust and probate law, which is no small feat. As the State Bar puts it:

“A Certified Specialist is more than just an attorney who specializes in a particular area of law.  An attorney who is certified by the California State Bar as an Estate Planning, Trust & Probate Law Specialist must have:

  • Taken and passed a comprehensive full-day written examination in estate planning, trust, and probate law administered by the State Bar Board of Legal Specialization;
  • Demonstrated a high level of expertise and requisite number of years of experience in estate planning, trust, and probate law;
  • Fulfilled mandated ongoing education requirements in estate planning, trust, and probate law;
  • Been favorably evaluated by other attorneys and judges familiar with his or her estate planning, trust, and probate work.”

Out of 190,000 attorneys in California, only 1000 of them are certified as specialists in estate planning, trust and probate law. That is only 0.5% of attorneys. From the State Bar again – “Whether your situation is simple or complex, consider hiring an attorney who is a ‘Certified Specialist in Estate Planning, Trust & Probate Law’ by the State Bar Board of Legal Specialization – an attorney who is committed to maintaining skill and expertise in estate planning, trust, and probate law through continual attention and continuing education.

Stephen M. Wood is an Attorney in our Camarillo office. For more information about hiring an attorney who specializes in Estate Planning, Trust and Probate Law, call Stephen at 805-484-2769.

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How to disinherit someone

Disinheriting a person it sounds easy but in practice can be difficult to accomplish. The first step is to determine whether the disinherited person is in line to inherit anything in the first place.

Put it in Writing

Generally speaking, if a person does not create a Will or trust prior to death or incapacity (think stroke, dementia, Parkinson’s and Alzheimer’s) that person’s wealth is distributed to the surviving spouse (if any) or descendants or both. For example, Pat and Chris are married and have three children. If Pat does not make a will or trust during his lifetime, Pat’s property will likely be distributed to Chris at Pat’s death. However, some property may be distributed to the children depending on State law and the characterization of property: whether the property is Pat’s “separate” property or Pat and Chris’s “marital” or “Community Property.”

Pat generally has the ability to disinherit Chris from Pat’s separate property and Pat’s portion of the marital property. Chris is entitled to retain Chris’s portion of the marital property.

If Pat and Chris want to disinherit one of their children, they can do so provided that there is a trust or are wills created by Pat and/or Chris. The documents must identify the existence of the children and which child, specifically, is disinherited.

Identify the Disinherited Person

Many people mistakenly believe that they need not mention a child and, in not mentioning the child, that serves to disinherit the child. This is not the case. If Pat and Chris want to disinherit a child, they must make it clear that the child is receiving nothing.

Should the Disinherited Person Receive $1?

Whether Pat and Chris have to leave a disinherited child “$1” depends on your State law. In many States there is no requirement to leave a disinherited child anything.

Write Down the Reason for the Disinheritance

There is an axiom in science that nature abhors a vacuum and there is an equivalent axiom in law that says the law abhors a forfeiture. There should be a reason, preferably a valid “reasonable” reason, that Pat and Chris want to disinherit their child. If the child files a lawsuit to oppose the disinheritance, it’s better to have a valid reason that the person is disinherited then no reason for the disinheritance. Perhaps even worse is a bad reason to disinherit someone. It may be helpful to have a hand written note separate from the Wills or Trust that explains the reason for the disinheritance.

Bear in mind that a Judge always retains the power to invalidate or “interpret” the terms of a will or trust and to re-inherit the disinherited person.

Think Twice Before Disinheriting Someone

Your Will and Trust are part of a larger estate plan. Your estate plan can shape your legacy. Think carefully before you remove a child or other descendant from your estate plan. What will the other beneficiaries think? How will they react? Will this end the situation or will it merely feed the fire?

Please get a Lawyer and Don’t do it Yourself

We know what we know and we know what we don’t know. This knowledge tends to keep us out of trouble. Its not knowing what we don’t know that gets us into trouble. Abraham Lincoln said if you represent yourself you have a fool for a client.

Wills and trusts, and estate planning in general, is highly technical. It is equivalent to writing computer code. If one line of code is bad, it can crash the whole program. The same is true with estate planning and wills and trusts.

If you do hire a lawyer, choose a specialist and avoid the generalists. You should choose somebody that is completely focused on this area of the law. Stated another way, you need to hire someone who knows what they don’t know.

–Jim Cunningham, Jr.IMG_93063672222099

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The 5 Golden Rules Of Lending Money To Your Adult Children

When you think about the price of having kids, the costs that come to mind may include things like child care, camp, braces and college tuition.

What probably doesn’t spring to mind are mortgages, car payments or personal loans.

The reality, however, is that your bank account will likely continue to be tapped long past the day your kids turn 21. According to a 2015 Pew Research Center report, six in 10 Americans with at least one adult child say they’ve provided their kids with some financial support within the past year.

And the dollar amounts they doled out were probably a bit steeper than $100 here or $500 there: A TD Ameritrade survey released in August found that parents supporting adult kids gave them an average of $10,000 over the past 12 months.

When dealing with an amount of that size, it’s very possible that parents expect to be paid back at some point. But entering into parent-child lending territory can be fraught with complications that could lead to big financial burdens and broken family ties.

So we rounded up some financial pros to provide tips on how to loan your adult children money in a way that helps minimize monetary strife and keep family drama at bay.

1. Only lend money you won’t miss.

Your child is just a few thousand dollars shy of a down payment on her dream home, and you’d really like to help her get into that three-bedroom Colonial. Before you reach for your checkbook, however, make sure it’s an amount you can stand to part with, rather than money you need for your own financial stability.

“The question I ask my clients [who are faced with lending to kids] is: ‘Are you willing to lose the money?’ If you can’t answer with a resounding yes, then I suggest you don’t loan the money,” says Tom Till, owner of APPS Financial Group, a financial advisory firm located near Houston.

And that advice doesn’t apply just to funds you use to pay your monthly bills; it’s also applicable to any money you’re setting aside for your future.

“If you don’t have enough in savings or retirement or haven’t reached your personal goals, then tell them you can’t help them at this time,” suggests Debbi King, a personal finance and life coach and author of “The ABC’s of Personal Finance: 26 Essential Keys to Winning With Your Money.” “Don’t mortgage your future and put it at risk.”

If you still get the pleading looks, explain your no in a way that shows why your financial stability can actually be a good thing for them. One client of Till’s used this approach to tell her daughter why she couldn’t lend her money for a home down payment: “She told her child that I had recommended against the loan because it would greatly affect her retirement income—even to the point where she might have to move in with the child at her new home.”

2. Be clear on how your kids will use the funds.

You think you’re lending your child money to help pay off a student loan, but you suddenly notice some sweet electronics and brand-new furniture popping up in his pad.

Coincidence? Perhaps not.

Consider that if your child is asking you for money, it may be a sign that he doesn’t have the firmest grasp on his finances to begin with. So if you’re not completely sure where those dollars are going, think about placing parameters on how you fork over the funds.

For starters, consider paying the lender directly, suggests ReKeithen Miller, a Certified Financial Planner™ with Palisades Hudson Financial Group who is based in Atlanta. “That way, the child can’t divert the funds for other purposes,” he says.

You could choose to disperse the loan in smaller amounts over time to help ensure that your child isn’t tempted to splurge with such a large amount, Miller adds. This also provides the option to refuse to release further funds if your child isn’t using them for their intended purpose.

Finally, if you feel your child needs to learn a serious money lesson, you can require that they get smarter about money management before you fork over any cash. “Parents have the option of making the loan conditional,” Miller says. “For example, if a child has issues with budgeting or credit card debt, you can require them to enroll in credit counseling before you agree to lend them the money.”

3. Set terms for late payments or defaults.

Your child likely has every intention of paying you back—but you can’t deposit good intentions in your bank account. To help keep your child accountable, lay out what happens if she is unable to pay you back in a timely manner.

“Treat [the situation] as if you were the bank giving the loan,” King says. “There have to be consequences, such as interest and fees for late payments and defaults, just like with a ‘real’ loan.”

There’s another potential benefit to charging interest: The IRS may be less likely to view your loan as a gift, says Miller, which means it won’t count toward your annual gift-tax exclusionamount. He suggests choosing an interest rate in line with the Applicable Federal Rate (AFR), an interest rate calculated by the IRS each month. Remember to consult with your tax advisor to be clear on how you report the interest to the IRS.

It’s also important to consider baking in how the payment terms might be adjusted if your family member’s financial circumstances change, either because of job loss or another income hardship. Could you, for example, reduce the payment amount temporarily, but raise the interest rate? Give them quarterly rather than monthly deadlines? Reduce the amount they’ll eventually inherit by the amount of the loan?

It may seem awkward at first, but not agreeing on those types of details up front only stands to heighten the tension later. King recalls one story about a colleague whose mother-in-law loaned her a few thousand dollars to buy a new car. They settled on a monthly repayment amount, but the colleague lost her job and was unable to make the payments. Even after finding a new job, the colleague was making much less and still couldn’t afford to the payments.

“She felt as if she were being judged by every purchase she made. She got the feeling that the mother-in-law was saying, ‘If you can afford that, you can pay me what you owe,’ ” King says. “And every time [her husband] sees his mom, he’s always waiting for her to bring it up—not knowing what to say if she does.”

4. Present a unified front.

Your child probably figured out pretty quickly that when Mom said no to cookies for breakfast, he might get a more favorable response from Dad.

That good-cop, bad-cop dynamic, however, can have much bigger consequences when you’re talking money. So before saying yes to a loan, make sure you and your spouse have agreed uponall of the loan terms. This will not only help avoid an argument later, but could also help protect one spouse in the unfortunate event that the other isn’t around to enforce the agreement.

“A common scenario I’ve seen is where Dad discusses the terms of the loan with the child without involving Mom. Dad dies without communicating the loan terms, and Mom is in a situation where she has to decide if her child is telling the truth—or trying to shirk responsibilities,” Miller says. Plus, “If Mom forgives one child’s debt, she may be obligated to do the same for the other children to avoid tension within the family—and she may not be in a financial position to do so.”

One other piece of advice? Consider getting input from a financial advisor, who may be able to help you and your spouse settle disagreements on loan terms, as well as help play bad cop to the kids, if necessary. “Inserting a third party into the mix may make the children more apt to abide by the terms of the agreement, since they know someone outside of the family is monitoring the situation,” Miller says.

5. Get *everything* in writing.

As with any other bank, the Bank of Mom and Dad should have a promissory note signed by both parties that lays out all of the loan terms, including the principal amount, the interest rate, the payment structure, and any other conditions you’re expecting your child to meet in order to be “approved” for the loan.

“Even though the money transaction is between family, it is best if it is treated like a business transaction. Be as clear as possible on the expectations, and it will cut down on family disputes down the road,” Till says. “[And] it’s important to stay firm to the agreement. This can be a learning opportunity for your adult child—no matter the age.”

Read the original article on LearnVest. Copyright 2016.

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What could happen if you write your own living trust

Readers often ask me about do-it-yourself estate planning. Lawyers want to know how to discourage clients from using books or software and websites that spew out documents for free or for a fraction of what they charge. Meantime, consumers ask, “What’s wrong with that?”

The trouble with do-it-yourself planning is that even if your situation seems simple, there are many oddball things a layman wouldn’t think of that can go wrong, especially with wills and trusts. These mistakes can end up costing you or your heirs a lot more than you saved in legal fees.

Eileen Guerin Swicker, a lawyer with her own practice in Leesburg, VA, recently told me about a really doozy. It involved a client who set up his own living trust.

By way of background, both a will and a living trust can be used to transfer assets, and each has unique uses and features. For example, only a will can name guardians for children who are minors. (For how to choose a guardian, see my post, “Adam Yauch’s Will Reveals His Private Dilemma.”) And unlike a will, a living trust can take effect while you are alive, so it can be used to hold assets for your benefit if you become unable to manage them yourself.

The client who Swicker told me about set up his own trust in 1984, using a 3-page form that he bought at an office supply store. He recorded a deed to transfer his home into the trust, and absentmindedly dated that deed 1983 (in other words, one year before the trust was created).

Flash forward to 2009 when this fellow, who had paid off the mortgage on the house, wanted to borrow against it. He planned to give his adult daughter $300,000 in cash so she, in turn, could pay off the mortgage on her own house. Great strategy (see my posts, “5 Ways To Help Family Pay For Housing,” and “The Best Investment Advice I Ever Received”).

But at this point, his clerical error of 25 years earlier came back to haunt him. Why? Because the title company said he didn’t have a clear chain of title to his home, so the bank wouldn’t give him the loan. The man, who by then was 75, called Swicker’s previous law firm in tears, asking for help.

Fixing the problem was a convoluted process that took two weeks and wound up costing the client $2,000 in legal fees. That’s about twice what he would have had to pay back in 1984 if he had had the firm draw up the trust instead of doing it himself, Swicker says.

After that, Swicker hoped the client would call back and ask lawyers to help bring his estate-planning documents up to date. But by the time Swicker left the firm eight months later, he still hadn’t done that. Says she: “It was one of those classic cases of somebody who dug a hole, and kept digging it deeper.”

Source: Deborah L. Jacobs – Forbes, August, 2012

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Estate Tax Exemption for 2016

Good News!

Recently, the Internal Revenue Service (IRS) announced the new limits for estate and gift taxation. These are the amounts that you can give tax free during life or at death in your will or living trust. Unfortunately, the annual gift exclusion stays at $14,000 – the amount that you can give (per person, per year) without having to file a Form 709 gift tax return. This means a married couple could give their three children a total of $84,000 and not have to file a gift tax return (two parents x three children x $14,000 = $84,000).

The death tax has gone down, just a bit. In 2015 you can leave $5,430,000 tax free – that amount increases to $5,450,000 in 2016. This means that you and your spouse can leave $10,900,000 tax free (but you have to file an estate tax return Form 706 on the death of the first spouse to die). If you are married and have a taxable estate less than $10,900,000 – no Federal Estate Tax. You can also give, as a married couple, $10,900,000 and not pay gift tax. Remember that a taxable estate includes your equity in real estate, your personal property, your bank accounts, your IRA/401K/TSA, and the death benefit on your life insurance policy.

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24 states where child care costs more than college

While the astronomical (and rising) cost of college seems to garner all the media attention, it’s the cost of child care that should be more worrying for many parents.

Nearly 11 million children under the age of five require child care at least weekly and spend an average of 36 hours a week in child care — and for the parents footing the bill, this can make a serious dent in their finances.

In roughly half the states in this country, child care costs more than college, according to a report released this year by the Economic Policy Institute, a nonprofit, nonpartisan think tank focused on conducting research around the economic status of working Americans. Indeed, in 24 states and Washington, D.C., the average cost to care for a four-year-old for one year exceeds the cost of tuition for a year at a public, in-state four-year college. And in 33 states and Washington, D.C., the average cost to care for an infant for a year exceeds the cost of tuition for a year at a public, in-state four-year college.

Annual child care costs for a four-year-old range from $4,128 in rural South Carolina to $17,664 in Washington, D.C. The average annual cost of tuition for an in-state full-time undergraduate student in a public college ranges from $3,756 in Wyoming to $14,469 in New Hampshire.

The cost of child care, as well as stagnant wage growth (average hourly earnings have risen just over 2% in the past year, which EPI notes is “in line with the same slow growth we’ve seen for the last six years), means that average families — as well as more affluent families who live in a city where care is very expensive — struggle to pay, says Elise Gould, a senior economist at EPI. The affordability threshold for child care is 10% of one’s income, according to the Department of Health and Human Services, and yet only in a “handful” of areas do child care costs come even close to that threshold, EPI notes. “This standard cannot be met by most families,” Gould says.

Indeed, in a two-parent household with an infant and a four-year-old, child care ranges from 19.3% to 28.7% of total family budgets. This compares with a range of 11.8% to 21.6% for families with a 4-year-old and an 8-year-old, thanks to the fact that infant care tends to be the priciest form of child care, EPI data reveals.

“The high cost of child care can be a crippling burden for families with young children,” according to the latest child care costs report by ChildCare Aware of America, a group that researches the quality and availability of child care.

It might seem baffling that child care is so expensive given the low pay of child care workers (the average child care worker makes only about $10 an hour, according to the Bureau of Labor Statistics). But this high cost is thanks in large part to the fact that child care (especially high quality child care) is “a labor-intensive industry, requiring a low student-to-teacher ratio,” the EPI report notes. Other large expenses for child care centers are rent/mortgage, food and insurance (business, liability, real estate and workers’ compensation), ChildCare Aware of America notes, and lesser costs include security, staff training, toys and supplies, and utilities.

Ideally, parents will start saving for child care even before they become parents. “Five years [ahead of the birth of a child] is ideal but tough to realistically plan that far ahead when the average couple isn’t married that long prior to having kids,” says mom-to-be Christina Lindsey Orta, a certified financial planner and vice president at Lindsey & Lindsey in Westlake Village, Calif.

If you’re one of the many parents who hasn’t yet saved for child care, there are a variety of ways to find cash. Orta says you should consider a mortgage refinance to yield some extra monthly cash. “As home values have appreciated and interest rates are low, often times a refinance of a mortgage may make sense,” she says.

You may also want to consolidate credit cards to cards with lower rates (look for cards you’re paying more than 12% on) and look at where you can make cuts in your budget, she adds. “Look at your budget and identify where the small things add up, such as Starbucks lattes every day at $6 a pop, add a muffin to that and you’re at $10,” she says.

Source: http://www.marketwatch.com/story/child-care-costs-more-than-college-in-these-24-states-2015-10-07

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Portability – The great estate tax break

You can’t take a tax break with you, but it’s becoming easier to leave to your beneficiaries. The IRS released final rulings detailing an estate and gift-tax break for married couples, known as “portability”. It allows a married spouse to pass nearly $11m in assets to heirs, free of estate tax. Without this, couples would only qualify for one exemption, as opposed to two.

The exemption, indexed for inflation, is $5.43m per individual in 2015. But the rules come with important caveats. Estate tax returns must be filed, usually within nine months of death, to take advantage of portability. Experts worry that executors will overlook this deadline, especially if an estate is smaller than the exemption and there is no reason to file a return.

Since ’81, the laws have allowed spouses to leave assets to one another free of tax. But at the 2nd death, only one exemption is left. Planners devised trusts to deal with this issue, but they can be costly and cumbersome. People should be willing and able to plan for the future.

Portability allows the surviving spouse to pick up the remaining portion of the partner’s gift and estate-tax exemption if the executor makes an election on Form 706, the estate tax return. In addition, portability doesn’t prevent the survivor’s estate from getting a benefit at death, which can cancel or reduce future capital gains tax on assets. If a couple’s combined assets are less that in this example (perhaps below $5m) experts still recommend taking advantage of portability because assets can grow, especially if the 2nd death is decades away.

For most people who aren’t rich, the downside of portability is the cost of estate-tax preparation, which requires professional help. The good news is that if the assets are below the $5.43m limit, expensive appraisals aren’t mandatory. The executor can file a list with reasonable estimates.

These new rules are likely to increase a rise in federal estate-tax filings, which totaled $34,000 in 2015. They also may increase business for accountants, enrolled agents, and lawyers to prepare estate-tax returns.

Source: WSJ- July, 2015